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Credit and debit cards are ubiquitous, but they’re mostly pretty dumb. That’s about to change. Over 170 million people in the U.S. have credit cards, and the average card holder has 3.5 of them. And those totals are not even counting debit cards, which are roughly 40% of the total market and growing. That’s a crap load of plastic! In spite of the promise of mobile payments, plastic cards are not going away any time soon.

We’re at the early stages of a massive wave of innovation in the payment industry. It’s like when Apple launched the iOS platform for mobile developers. The platform in this case is the payment network. Software developers will add new capabilities to cards by programming the payment network to link online applications to specific payment events. Consumers will be able to effectively “drag and drop” apps to their smart cards in the same way that they add apps to their smart phones today.

For all of the attention focused on online commerce, the market opportunity for “online to offline” commerce is way bigger. Online commerce is now a $200 billion industry, but it’s still small compared to offline transactions. Up to 70% of consumer spending is influenced by Web and mobile research, but over 90% of actual transactions are still conducted in the physical world. Several major industries are motivated to see this new app developer ecosystem take flight. Retail marketers know they can advertise more efficiently if they can actually track and close the redemption loop from online browsing to offline buying. Major consumer internet and financial services companies are also highly motivated, as they see a path to greater advertising and promotion-based revenue if they can demonstrate more marketing value through closing the loop. Online budgets that are directed at social ad campaigns will further expand as consumers share experiences connected to their offline card transactions, including reviews and gifting. So what will be the impact of this emerging app platform on the card carrying public?

Expanded memory: If you’re like most people, it’s hard to keep track of all of your paper and plastic. With cloud-connected cards, you can clear out your desk drawer or wallet. Instead of holding on to that Red Lobster gift card, REI loyalty card and printed Groupon deal, you can add these to your card, and receive benefits automatically when you make a purchase. You can also store a digital receipt or warranty on your card rather than keeping these in a filing cabinet in the basement. You’ll be kind of like Bradley Cooper in “Limitless”, without the creepy smile or the terrible side effects.

New spending habits: The ads and offers that you receive today via the Web and mobile are mostly blind to how you’re actually spending your money in the physical world. As these databases are more intelligently connected, the offers you receive will become significantly more relevant and compelling, based on where you spend your actual time and money. Note to payment network innovators: it’s critical that these programs are introduced in a way that protects consumer privacy and retains consumer trust.

Our spending habits tend to be just that, habits. So if you drink coffee at Starbucks three times a week but never try any of their food, you’ll receive an offer to try one of their fruit plates. Or if you buy gas at a Shell Station on your way to work once a week, you’ll be offered a better deal at the Texaco that is right across the street. The discount you receive from a merchant may also vary based on how hard they think your existing habits are to break. Merchants will be able to dynamically manage supply and demand in their local market by testing real-time what types of discounts and offers they need to offer so as to acquire foot traffic. So Supercuts might offer “40% off” if your historical buying patterns are concentrated 5 miles away, and “10% off” if your transactions are centered 5 blocks away.

Validated check-ins and reviews: One potential downside of most consumer review sites is that published opinions are dominated by a small, vocal minority. There’s value in getting a broader sampling of people to share their views. A growing percentage of reviews on sites like Yelp and check-ins on sites like Foursquare will over time be tied to actual transaction activity. When you and your friends buy, you’ll be asked via email or text message if you’d like to check-in or provide a review. As a result, more customers will provide feedback and recommendations, and the information they provide will be better validated, in connection with actual transaction activity. A review or check-in will carry additional weight when it’s been validated.

Quantified self: The “quantified self” is an emerging trend in the digital health space. Early adopters and fitness buffs are wearing devices like Fitbits and Nike FuelBands to track their heart rates, calories burned, quality of sleep and more, so that they can measure and improve their health and performance. The cloud-connected credit card will also deliver a stream of valuable intelligence based on your transaction behavior. Your health data stream alone could include how much of your diet is fast food, how often you actually visited your health club, and how many times you stopped for coffee (aka “your caffeinated self”). Your appified card can also deliver you informed insights on your spending activities across other life categories so that you can optimize decisions and be your best self.

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Thanks for writing, I appreciate hearing what is trending in your offices. This article didn’t go the direction I assumed it would go. I don’t want a super card, heck, I don’t want a wallet; but I don’t see it going away in the next 5 years.

When you say, “The platform in this case is the payment network. Software developers will add new capabilities to cards by programming the payment network to link online applications to specific payment events. Consumers will be able to effectively “drag and drop” apps to their smart cards in the same way that they add apps to their smart phones today.”

You’re really talking about a “smart card”. If the card was a virtual card on my smartphone, then you have my attention. If the card is talking to the cloud, I don’t need the plastic at all. What am I missing??

No doubt that plastic money is going to stay for some time here but at the same time we have observed that major payment system networks are working tirelessly to adopt mobile technology and have some kind of synergy between plastic money and mobile money. This will be next phase and will be available for some time now for customers to experience.

However, the next phase will be of mobile based payment system. As a user, it is very difficult for me to remember 10 different PIN for 10 different cards. I also cannot use same PIN for all the plastic cards as this will be equivalent to security breach. But I would definitely be more comfortable if I am presented with real time PIN/password to be used on payment terminal. This is possible only when, we adopt mobile as payment tool.

You can visit http://mycardclub.com for more on payment system related articles.

I agree with Reid Hoffman, however while this vision of integration is compelling, there are many facets that need addressing. The challenge for many companies to get the value Reid describes is there are a dearth of skills in the market, and to turn this data into information, many companies simply don’t have the skills to do so. Like the move to online shopping, adoption will occur when all the elements are in place. Getting the data Reid describes is one thing, delivering the conversation to the consumer so they engage rather than opt out requires detailed knowledge of consumer behavior. Once they opt out, they rarely opt back in.

Great article Bruce. I’ve spent the past 14 years working in the card-not-present payments space, and it blows my mind how the industry changes on a daily basis. Companies and industry experts are trying to figure out how to simplify the process of getting paid. Yet, many companies make it more confusing by building technology that is not needed.

A few hours before you posted this article, I was speaking to a group about a payments company who I am advise for called PaidYet and how these guys really get it. They looked at the current payments landscape, stripped out the complicated layers, mixed in what is current(social, mobile, apps) with a splash of what customers will use in the future, and made an incredible platform what uncomplicates the payment chain for a merchant and consumer, and they don’t compete with carriers or payment processors. Eventually, I believe this will be the direction more payment technology companies take. See what we have today, strip it down to the basics, and build a product that people will really use.

Chip cards in the payment space have been talked about for over 20 years. Although in use in many parts of the world, in the biggest market – USA we don’t see them. I suspect the mobile technology, starting with the phone that have the near-field capability will rule the day. But the 800 pound gorilla isn’t the technology capability. It’s the very old infrastructure in the card payment space which is very expensive to upgrade and replace. With regulators squeezing the providers of payment services, the funds needed simply aren’t there. You must first have a very compelling business case.

Chip cards in the payment space have been talked about for over 20 years. Although in use in many parts of the world, in the biggest market – USA we don’t see them. I suspect the mobile technology, starting with the phones that have the near-field capability will rule the day. But the 800 pound gorilla isn’t the technology capability. It’s the very old infrastructure in the card payment space which is very expensive to upgrade and replace. With regulators squeezing the providers of payment services, the funds needed simply aren’t there. You must first have a very compelling business case.

Chip cards in the payment space have been talked about for over 20 years. Although in use in many parts of the world, in the biggest market – USA we don’t see them. I suspect the mobile technology, starting with the phones that have the near-field capability will rule the day. But the 800 pound gorilla isn’t the technology capability. It’s the very old infrastructure in the card payment space, which is deeply integrated into other banking systems, is very expensive to upgrade and replace. With regulators squeezing the providers of payment services, the funds needed simply aren’t there. You must first have a very compelling business case.